| Course | ACC 349 Cost Accounting (ACC/349) |
|---|---|
| Week | 5 |
| Paper type | Capital budgeting and performance paper |
| Length | about 1,009 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 349 Week 5
A Robot Cell Worth Buying That a Division Manager Might Refuse: Net Present Value, Payback and Return on Investment Versus Residual Income at a Composite Plastics Molder
[Student Name]
University of Phoenix
ACC/349: Cost Accounting
Week 5 Assignment
[Instructor Name]
[Date]
The company, its divisions and all figures are composites written for a model paper; methods and research findings come from the sources listed.
A composite plastics company operates two divisions from separate plants. The medical parts division molds components for diagnostic devices under strict quality rules; the housewares division molds storage containers and kitchen tools. Division managers receive bonuses based on return on investment. The medical division's manager has been offered a robotic cell that removes parts from molds, inspects them with a camera and packs them. The robot pays for itself by the company's own standard, yet the division manager has good reason to say no. This paper explains both halves of that puzzle.
Cash Flows
The cell costs $420,000 installed. It will replace two operators per shift on a two-shift schedule, saving $110,000 a year in wages and benefits after the cost of a technician's time. Maintenance and software support will add $12,000 a year, so net annual cash savings are $98,000. The cell has a useful life of six years and an expected salvage value of $30,000. The company's minimum required return on new investments is 10%. Taxes are left out to keep the example focused, though in practice depreciation would create a tax saving that improves the result.
Net Present Value
The present value of $98,000 a year for six years at 10%, using an annuity factor of 4.3553, is about $426,800. The present value of $30,000 of salvage at the end of year six, using a factor of 0.5645, is about $16,900. Total present value is about $443,800, which exceeds the cost by about $23,800. A positive net present value means the cell earns more than 10% and adds value to the company.
Internal Rate of Return
At 11%, net present value is about $10,600; at 12%, it is about minus $1,900. The rate at which it equals zero, the internal rate of return, is therefore close to 11.8%. That exceeds the 10% required return, which agrees with the net present value result.
Payback and Accounting Rate of Return
Payback is the cost divided by annual savings, $420,000 divided by $98,000, or about 4.3 years. The accounting rate of return uses income rather than cash. Annual straight-line depreciation is $420,000 less $30,000, divided by six, or $65,000, so annual operating income from the cell is $33,000. On the initial investment, that is a return of about 7.9%; on the average investment of $225,000, about 14.7%.
Each method answers a different question. Payback tells the manager how long the money is at risk but ignores the last two years of savings and the salvage value. The accounting rate of return uses figures from the financial statements but ignores timing. Net present value accounts for both timing and the full life of the asset, which is why Datar and Rajan (2021) treat it as the primary method. Graham and Harvey (2001) reported that about three-quarters of surveyed finance chiefs always or almost always relied on discounted methods, while payback kept a strong following, especially in smaller companies.
The Division's Return on Investment
The medical division earned operating income of $1.8 million last year on average operating assets of $9.0 million, a return on investment of 20%. Its manager's bonus rises with that figure. In its first year, the cell would add $33,000 of income and about $420,000 of assets. The division's return would become $1,833,000 divided by $9,420,000, or about 19.5%. Even using average investment over the cell's life, the project earns less than 20% on an accounting basis. A manager who acts to protect his bonus would decline a project that the company's own analysis says is worth $23,800.
Residual Income
Residual income subtracts a capital charge from a division's profit. At the 10% required return, the medical division's residual income is $1.8 million minus $900,000, or $900,000. With the cell, it becomes $1,833,000 minus $942,000, or $891,000 in the first year, because the asset is newest and least depreciated at the start. Over the cell's life, as its book value falls, it adds residual income, averaging $33,000 minus 10% of $225,000, or $10,500 a year. Unlike return on investment, residual income rises whenever a project earns more than the required return, so it points the manager toward the same choice as net present value, though its first-year dip shows that no accounting measure matches discounting perfectly.
The Housewares Division
The housewares division earned $900,000 on $7.5 million of assets, a return of 12% and residual income of $150,000. Its manager faces the opposite problem: almost any project earning more than 12% raises the division's return, even one below the company's cost of capital would lower residual income. Measuring both divisions on return on investment rewards the high-return division for being cautious and the low-return division for taking on marginal projects.
Beyond Financial Measures
Neither measure captures what makes the medical division valuable. Customers audit its quality systems, and a missed shipment can end a contract. Kaplan and Norton (1992) proposed adding customer, internal process and learning measures to financial ones. For the medical division, sensible measures include first-pass yield, on-time delivery and audit findings. The robot cell's camera inspection would likely improve yield, a benefit not counted in the cash flows above.
Recommendation
The company should buy the robot cell, since it has a positive net present value and an internal rate of return above the required rate, and its quality benefits add to the case. It should also change how division managers are judged, replacing return on investment with residual income measured over several years and adding two or three nonfinancial measures, so that managers' incentives match the company's investment rules. Garrison et al. (2021) note that performance measures shape the decisions managers make, and this case shows how.
Conclusion
The robot cell passes every discounted test and a reasonable payback period, but return on investment would have discouraged the manager from proposing it. Residual income and a balanced set of measures align the manager's interest with the company's.
References
Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.
Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial accounting (17th ed.). McGraw Hill.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard: Measures that drive performance. Harvard Business Review, 70(1), 71-79.
What the ACC 349 Week 5 instructions ask
ACC 349 Week 5 usually asks students to evaluate capital investments and discuss how performance is measured in decentralized organizations. Typical requirements include net present value, internal rate of return, payback and sometimes the accounting rate of return for a proposed asset, followed by a recommendation. The performance part often covers responsibility centers, return on investment, residual income or economic value added and the balanced scorecard. Some prompts ask students to explain conflicts between these measures or how they affect managers' decisions. The written paper should show calculations with stated assumptions, interpret the results, consider risk and qualitative factors and cite the textbook and research in APA style.
How this ACC 349 Week 5 example is built
An injection molder buying automation gives the paper a clear investment with measurable savings and a division whose manager is judged by return on investment. The capital budgeting section lists the cash flows, then applies each method with its calculation and explains what each one does and does not capture. The performance section then shows the twist: the project clears the company's required return but would lower the division's high return on investment, so a manager paid on that measure might refuse it. Residual income is computed to show the opposite signal. The paper ends by recommending a mix of residual income and nonfinancial measures for division managers.
ACC 349 Week 5 grading rubric: where the points go
Grading in this week tends to reward correct discounting, sound interpretation of each method and a clear link between investment analysis and performance measurement. Faculty check that cash flows exclude depreciation but include salvage value, that present value factors match the rate and life and that payback and accounting return are calculated as defined. Interpretation matters: stating why net present value is preferred, and what payback ignores, earns credit. In the performance part, return on investment and residual income should be computed correctly and their different effects on decisions explained. Recommendations backed by sources come next, then structure and APA style; slips in the discounting arithmetic draw the heaviest deductions, because every later figure inherits them.
ACC 349 Week 5 help: mistakes to avoid
Many ACC 349 Week 5 papers subtract depreciation from annual cash flows when computing net present value; depreciation is not a cash outflow except for its tax effect. Use cash savings and add salvage value in the final year. Another error is comparing internal rate of return with the wrong hurdle rate. Explain each method's weakness: payback ignores cash after the payback year and the time value of money. In the performance section, compute return on investment and residual income for the division both with and without the project, since the comparison is the point. Include at least one nonfinancial measure, such as yield or on-time delivery. Finally, make a recommendation for both the purchase and the measurement system.
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- ACC 349 Week 3: Relevant Costs for Decisions
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ACC 349 Week 5 questions, answered
What does ACC/349 Week 5 usually cover?
It usually covers capital budgeting methods such as net present value, internal rate of return and payback, together with performance measurement using return on investment, residual income and the balanced scorecard.
Where can I find a free ACC 349 Week 5 sample paper?
This page presents a plastics molder example with every capital budgeting method and both division measures worked out and annotated. To get a first draft on your own case at no cost, just send it to us.
Why is net present value preferred over payback?
Net present value discounts all future cash flows at the required rate of return, while payback ignores the time value of money and any cash received after the investment is recovered.
What is residual income?
It is a division's operating income minus a charge equal to its average operating assets times the company's minimum required rate of return.
Why can return on investment discourage good projects?
A manager whose division already earns a high return may reject a project that beats the company's required return but lowers the division's average.
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